Fifth Third's Efforts Pay Dividends

9/3/2012


  Recent Price
$15
  Dividend
$0.32
  Yield
2.1%
  P/E Ratio
9
  Shares (millions)
955
  52-Week Price Range
$15.08 - $9.31

In August, the Federal Reserve approved Fifth Third Bancorp's ($15; FITB) resubmitted proposal to raise the quarterly dividend 25% to $0.10 per share as early as September and buy back $600 million in shares through the end of March, roughly 4% of the stock count.

The Fed rejected Fifth Third's dividend and buyback plan earlier this year, but last month's approval paves the way for future hikes. These moves should result in about 70% of earnings being paid out in dividends and buybacks this year, in line with management's long-term target.

With about 1,300 bank branches and 2,400 ATMs in 12 states across the Midwest and Southeast, Fifth Third holds about $117 billion in assets. The regional bank was hit by the weak housing market. But it also enjoys solid growth from corporate banking, an expanding deposit base, and an improving mortgage business. Fifth Third is a Focus List Buy and a Long-Term Buy.

Business breakdown

Fifth Third does not hold any of the securities backed by subprime loans that got so many other banks in trouble during the financial crisis. Its direct exposure to Europe is relatively small, with $2.29 billion in commitments to European businesses and banks at the end of June.

Over the last year, the loan and lease portfolio grew more than 6% to $84.22 billion. The bank's portfolio consists of 38% commercial and industrial loans, 16% residential mortgages, 14% auto loans, 12% home equity, 12% commercial mortgages, 4% commercial leases, 2% credit cards, and 1% commercial construction loans. Loans have risen in four straight quarters, and management expects more growth in the September quarter.

Fifth Third operates four segments:

Commercial banking generated 37% of net income in the first half of 2012. Net income jumped 79% in the six months ended June, lifted by a rise in commercial and industrial loans.

The branch-banking unit (10% of income) grew profits 8% in the first half of 2012. New regulations capping debit-card fees dragged down noninterest income despite rising transaction volumes.

Consumer lending (10%) issues mortgage, automobile, and home-equity loans. Fatter profit margins on residential mortgages and higher origination volumes drove net income to $81 million in the first half of 2012, versus just $5 million for the same period last year.

• Investment advisory services generated 2% of income.

Most of the remaining 41% of profits came not from a business unit, but from the improvement of credit trends, which drove a $239 million reduction in allowance for losses on loans and leases. The change in loss allowance reflects improving loan quality at all four business segments, and Fifth Third should reap further gains in coming quarters.

Shares have advanced 17% this year but still look cheap at 10 times trailing earnings, a 28% discount to the median regional bank. Rising analyst estimates target 2012 profits of $1.60 per share, implying 34% growth. An annual report for Fifth Third Bancorp is available at Fifth Third Center, Cincinnati, OH 45263; (800) 972−3030; www.53.com.

FIFTH THIRD BANCORP
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '12
0.40
vs.
0.35
+ 0%
14.66
-
12.04
10 - 8
Mar '12
0.45
vs.
0.10
+ 3%
14.73
-
12.78
12 - 11
Dec '11
0.33
vs.
0.33
- 9%
13.08
-
9.60
11 - 8
Sep '11
0.40
vs.
0.22
- 4%
13.09
-
9.13
13 - 9
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
6.67
1.18
0.21
15.75
-
9.13
13 - 8
2010
7.07
0.63
0.04
15.95
-
9.81
25 - 16
2009
7.69
0.67
0.04
11.20
-
1.01
17 - 2
2008
8.54
(3.94)
1.18
28.58
-
6.32
NM
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
91
87
78
39
90
77
84

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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